The AgTech VC hiding in plain sight on the US OTC market
By David Stevenson on Thursday 19 August 2021
By David Stevenson on Thursday 19 August 2021
Trendlines, the venture capital firm backed by tycoon Vincent Tchenguiz, is building a notable portfolio of AgTech businesses and its track record to date seems fairly impressive.
The US over the counter (OTC) market plays host to a small, listed Israeli/Singaporean venture capital firm that is quietly building a formidable portfolio of AgTech businesses, helped by some heavyweight entrepreneurial backers.
Arguably the safest way for investors to build their exposure to the fast-changing FoodTech/AgTech scene is through a diversified portfolio of investments via a fund – probably with an early-stage private business profile.
That latter focus on venture capital-backed private businesses is simply a reflection of the fact that most of the interesting businesses in this space are still relatively young in corporate terms.
By our narrow count at FFF, the existing universe of "proper" FoodTech businesses probably doesn’t even amount to much more than 50 companies worldwide listed on various stock markets, and even that figure is based on a generous definition of FoodTech.
That said, there are a small handful of listed venture capital funds that are available to investors – the biggest is UK listed fund Agronomics, followed by Canadian rival Eat Beyond Global.
But both these funds have their own idiosyncrasies with a focus more on the alternative protein space – Agronomics is very much a play on a portfolio of cultured meat businesses whereas Eat Beyond’s portfolio is more diverse and includes plant-based alternative businesses.
To our knowledge, there’s no listed fund that has a focus on another equally exciting bit of the Foodtech spectrum – AgTech, although it is worth noting some AgTech businesses do feature in the Agronomics and Eat Beyond portfolios but only in a minor role.
More’s the pity as we think the fast-evolving new technologies emerging to help farmers the world over to improve productivity, cut costs and produce new crops is potentially fascinating from an investment perspective.
Take two examples. First robotics where the availability of cheaper, experienced labour for fruit picking is causing major problems for many farmers, forcing them to adopt new technologies to maintain output.
Another exciting space in our opinion is plant biotech where the data-led advances from the human genomics technology platforms are now being pushed into next generation technologies to improve crops.
Interestingly, there is one venture capital fund that has a strong focus on AgTech that is connected to the public markets.
Israeli-based firm The Trendlines Group boasts a Singaporean stock market listing (it recently shelved plans for a dual primary listing on the Tel Aviv Stock Exchange). and a secondary US over the counter listing – the tickers are SGX 42T and for the US OTC TRNLY.
The US OTC quote is showing a price on the screens of around $3.69 per share valuing the business at $58m.
According to Trendlines, it “invents, discovers, invests in, and incubates innovation-based medical and agricultural technologies”.
In simple layman’s terms, it’s a venture capital firm that has two quite distinct early-stage private business portfolios in healthcare and AgTech.
Trendlines boasts two dominant shareholders, both of which are worth dwelling on.
The biggest is Librae Holdings (holding 23 per cent of Trendlines shares) which “is ultimately owned" by a trust of which Vincent Tchenguiz is the discretionary beneficiary.
Tchenguiz is an Iranian-British entrepreneur and businessman.
In recent years, the trust has invested some $400 million in medical and biotechnology companies and environmental issues directly and through incubators and venture capital funds.
UK investors will know Tchenguiz very well – he’s been phenomenally successful but also courted much controversy.
Here’s a link to the FT’s coverage of the self-made entrepreneur.
Another big shareholder is B. Braun which is the world’s largest private medical device company.
According to Trendlines, “B. Braun has offices and manufacturing plants in more than 50 countries and annual revenues exceeding €7 billion.
“B. Braun has invested directly in Trendlines, our incubator in Singapore and portfolio companies; they acquired our portfolio company, Stimatix GI. B. Braun works with Trendlines Labs, our in-house innovation group.”
You can find more about the business here.
Trendlines runs a mixed business model with a combination of underlying investment funds and direct holdings.
In terms of indirect funds, Trendlines runs a Maryland/Israel fund, Bayer Trendlines and a specific Singapore-based AgriFood fund.
In addition, there’s direct investments via four channels – a medical focused lab, a Singapore-based medical incubator, an Israeli-based Agtech incubator. Overall, Trendlines expects to make four to eight investments a year.
So, what’s in the various portfolios?
From our cursory observing of recent financial presentations, there’s a total of 58 companies, of which 20 are described as advanced stage. From our observations, 35 of these are healthcare companies and 23 in AgriFood or AgTech.
In total the book value of the business at the end of June this year was around $100m compared to a market cap of $58m, with just under $11m in cash or short term deposits.
Expenses seem to be running at the $6.5m to $7m level every six months which implies an annual overhead of around $13 to $14m.
In the AgTech basket Trendlines highlights six businesses from its portfolio:
As for the performance of this early stage portfolio of Healthcare and AgTech businesses, Trendlines says it has raised $307 million so far for its portfolio companies and boasts nine Exits to date with 8.7X return and 175 per cent IRR on exits.
From our reading, nearly all the exits to date have been in the healthcare portfolio with returns ranging from 216 times return for Biosight in 2017 through to 4.9 times for Flowsense Medical in 2013.
Stepping back, it's worth making a few observations.
The first is that Trendlines is a NOT a pureplay AgTech business, and on our reading has a bit more of a focus on its healthcare investments – that’s certainly evident from the track record of healthcare deals. To date we can’t see any exits from its AgTech portfolio.
That said, it's obvious the AgTech portfolio is now clearly being ramped up, although again we’d observe that to date most of the investments in this space are quite small in terms of capital invested – most deals seem to be in the $300k to $600k range.
Trendline’s track record to date seems fairly impressive and the returns from the healthcare portfolio seem more than acceptable. We’d also observe that there seems to be a discrepancy between the share price and the book value – on initial inspection, Trendlines appears to be trading at a 40 per cent discount on NAV.
The challenge though is that discount may turn out to be persistent unless its dominant shareholders want to do something about it.
We’d also note that the current $3.5 plus share price level is well below the $5 plus trading range from before 2019.
This relatively subdued share price performance stands in contrast to the impressive performance numbers for many biotech VCs and is a stark contrast to roller-coaster ride in share price terms of the listed Foodtech funds.
It’s possible that the share price is in a sense rather artificial – volume is very low (in the low tens of thousands shares per day) and the listing is OTC. Our final caution is that the AgTech portfolio, though interesting, is still early stage and untested with no big successes or exits to date.
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